Witty says GSK must change as strategic shift is outlined

GlaxoSmithKline has posted an unspectacular set of financial results for the second quarter but this has been overshadowed by the firm setting out a major strategic shift to focus less on looking for blockbusters and build up its vaccine and consumer health businesses instead.

In a presentation yesterday, chief executive Andrew Witty laid out three new strategic priorities that aim to increase growth, reduce risk and improve GSK’s long-term financial performance. Explaining the reasons for such a move, he said that the pharmaceutical industry will face “immense challenges as an unprecedented number of products lose patent protection”.

This will be set against “a backdrop of payors searching for ever more cost-effective healthcare and escalating patient demand for new and better medicines,” he added, so “companies must work harder to demonstrate greater return from investments in R&D”. The moves he is implementing will see GSK evolve into a company “that has a balanced group of healthcare businesses and a lower overall risk profile” and “they also point to a more disciplined allocation of capital across all our different business areas”.

He then spoke of GSK’s vaccines and consumer healthcare businesses, saying that they offer significant growth opportunities, given “increasing global trends to preventative healthcare and self medication.” In particular, the firm has a substantial opportunity to expand its vaccines business in emerging markets and Asia Pacific and Mr Witty said investments in capacity and regulatory expertise in these countries was an “immediate priority”.

He is particularly excited about GSK’s “strong launch pipeline in Japan”, with more than 25 product opportunities either registered or to be filed with regulators over the next two years. “We will be in the enviable position of launching products from three eras of drug discovery into the Japanese market over the next few years,” he noted. Also the branded generics deal announced with South Africa’s Aspen (see yesterday’s World News) represents GSK’s new strategy to accelerate growth in emerging markets, Mr Witty said.

He then spoke of the potential of GSK’s biopharmaceuticals business with over 12 clinical research programmes underway including five compounds in late-stage development. He went on to say that “the core of GSK has been and will remain pharmaceutical R&D” but “drug discovery is best optimised through research by small, focused teams”. In the future, he added, “we believe that up to 50% of GSK’s drug discovery could be sourced from outside the company”.

The CEO also laid out the details of the firm’s new Drug Discovery Investment Board, whereby investment capital is allocated “in a disciplined way to competing research teams”. A corporate venture fund is also being set up which will invest in start-up ‘incubator’ companies based on GSK-generated assets and intellectual property. The firm has also begun to consult with payors “at an early stage of clinical development to ensure that drug targets are consistent with payor needs,” Mr Witty said, noting that “it is clear that GSK must change if it is to be successful in the future”.

Mr Witty’s vision for the future attracted much more attention than GSK’s financials which saw the company report a 2% decline in revenue for the second quarter to £5.87 billion and a 2% fall in pretax profits to £1.84 billion.

Pharmaceutical sales fell 2% to £4.92 billion, hit by generic competition and lower sales of the diabetes drug Avandia (rosiglitazone). Revenues from the latter were down 46% to £194 million, amid continuing fears that the drug could increase the risk of heart attack.

It was not all doom and gloom, however, and Advair/Seretide (salmeterol and fluticasone) for asthma and chronic obstructive pulmonary disease grew 6% to £964 million. GSK's vaccine sales climbed 34% to £577 million, while Lamictal (lamotrigine) for epilepsy were up 18% to £323 million.